09/11/2001 - Updated 04:00 PM ET Mexico stock trading suspended

MEXICO CITY (Reuters) — Mexico's financial markets were pummeled on Tuesday after a series of terrorist attacks in the United States, Mexico's largest trading partner.

Trading on the Mexican stock exchange was suspended after the market's main index plunged to its lowest level this year on news of the attacks.

President Vicente Fox said in a nationally televised addressed that Mexican financial markets would resume normal activity "when conditions permit."

The panic spilled over to the currency and fixed-income markets, which registered heavy losses.

Mexico's central bank suspended its weekly auction of Cetes, or T-bills, citing the "tragic events" in the United States.

"There was a lot of confusion and panic this morning," said Hector Trigos, director at the $1 billion closed-end Mexico Fund MXF.N. "The clinching factor now is how the U.S. markets will react to these events."

Mexico's benchmark IPC index of the 35 most liquid stocks on the Mexican stock exchange closed down 5.55% at 5,531.02 points after trading was suspended at 10:12 a.m. local time.

During the course of the shortened trading session, the IPC fell by as much as 7.8%.

The wave of panic selling wiped out all of the market's gains since the end of last year, pushing the IPC index to its lowest level since Dec 26, 2000, when it closed at 5,499.40 points.

"It was incredible watching the towers collapse," said a senior trader at a local brokerage. "The effect on the market was almost comparable to the Asia crisis of 1998 and the Tequila effect in 1994."

A botched devaluation in December 1994 sent Mexico into its deepest recession since the 1930s, an economic debacle that spread through Latin America and was dubbed the "Tequila effect."

Leading blue chip shares were savaged, plunging to record lows, in a wave of panic that swept the market on news of the aircraft explosions that destroyed the World Trade Center's landmark twin towers in New York and rocked the Pentagon in Washington.

Shares of Mexico's No. 2 broadcaster TV Azteca plummeted 11.24% to 3.00 pesos per share, their lowest level since late November 1999. Azteca stock is down nearly 50% since the end of 2000.

Also swept in the wave of the early morning sell-off were shares of Latin America's largest wireless operator America Movil, dropping 8.81% to 6.11 pesos per share, its lowest closing level ever since the stock was first listed in early February.

American Depositary Receipt (ADR) listings of Mexican companies on the New York Stock Exchange were not traded due to a suspension of activity on all major U.S. equities markets.

Analysts stressed that the direction of Mexican markets over the coming days will hinge on the reaction of the U.S. government to the wave of bombing attacks.

"We just have to hold tight and see what the U.S. government's reaction is and how that might affect Mexico and U.S.-Mexican relations," said Felix Boni, analyst at ABN Amro.

In addition to sharing a 2,000-mile border, Mexico sends nearly 90% of its exports to the United States, tying the country's economic fortunes closely to those of its northern neighbor.

Mexico's economy has been reeling recently from the impact of the sharp slowdown in the U.S. economy, with many analysts forecasting growth of about 0.5% this year compared with a growth rate of 6.9% in 2000.

Meanwhile in the currency market, the peso tumbled to 9.58 against the U.S. dollar, a loss of nearly 2%, or 18.55 centavos, from Monday's close, as dealers scrambled to the safety of greenbacks.

"Under this extraordinary situation, everyone was looking for a safe haven," said the Mexico Fund's Trigos.

The peso fell to its lowest level since March 23, leaving it with a modest gain of 0.7% since the end of last year.

In the local fixed-income market, rates on the overnight Cetes, or local T-bills, which fell recently to historic lows, shot up 350 basis points to 9.50% on news of the U.S. attacks.

http://www.usatoday.com/money/world/2001-09-11-mexico-stocks.htm

-- Martin Thompson (mthom1927@aol.com), September 11, 2001

Answers

We in the U.S. sure do carry an abnormally high burden. We are depended upon to prop up all the other economies of the entire world.

-- Uncle Fred (dogboy45@bigfoot.com), September 11, 2001.

The number of foreign goods we depend upon is staggering. We need them too. Much of our buying power has come from inflated real estate values, which are now set to fall.

-- Ken (n4wind@sonic.net), September 11, 2001.

I think you're right, Ken....real estate in this country is about to take a nosedive.

-- R2D2 (r2d2@earthend.net), September 11, 2001.

And then again it might not. Its hard to say where the money will flow in order to find a "safe haven". Gold received a good start yesterday. Its usually bonds and high dividend stocks. Time will tell. Its best to be diversified anyway.

-- Guy Daley (guydaley1@netzero.net), September 12, 2001.